Brown-Forman's stock slides 9% after Jack Daniel's parent's sales fall short of estimates

By Ciara Linnane

Sales miss overshadows a profit beat and guidance for flat sales in 2024

Brown-Forman Corp. 's stock fell 9% on Wednesday, after the parent of Jack Daniel's whiskey's fiscal third-quarter sales fell short of estimates, overshadowing a profit beat.

The Louisville, Ky.-based company (BF.A) (BF.B) posted net income of $285 million, or 60 cents a share, for the quarter to Jan. 31, up from $100 million, or 21 cents a share, in the year-earlier period. Sales fell 1% to $1.069 billion from $1.081 billion.

The FactSet consensus was for EPS of 56 cents and sales of $1.129 billion.

CEO Lawson Whiting said it was a year with "significant uncertainty" in the spirits industry.

"As industry trends have normalized, we have expanded our gross margin, executed our strategic priorities, and invested behind the business," he said in a statement.

See also: Constellation Brands' stock up after profit beat offsets soft sales and guidance

On a call with analysts, Whiting described the roller coaster the spirits industry has gone through since the start of the COVID-19 pandemic. As restaurants and bars closed and travel was restricted, many people set up and stocked at-home bars.

Once the crisis eased, consumers started to invest heavily on travel and experiences they missed during lockdowns, while some continued to entertain at home, creating what the industry called a COVID Super Cycle, said Whiting, according to a FactSet transcript.

That period was followed by the high inflation and rising interest rates of the last two years that again disrupted consumption patterns, but this time to lead many to curb their spending, especially on discretionary non-essential items.

"By the late summer of 2023, the spirits industry across much of the developed world, including the U.S., saw the impact of these changing consumer behaviors in the form of weakening takeaway trends," said Whiting.

Adding to the gloom, Brown-Forman had its own issues such as supply chain snags and glass supply constraints that hit its historical distributor ordering patterns.

The company is expecting behavior to revert to the norm over time, however. But for now, earnings comparables are challenging, he said.

Truist analysts said the stock's fall was not surprising, given it has run up 12.5% over the last month and a half, while the Consumer Staples Select SPDR ETF XLP has gained just 3.3%.

Sales in emerging markets and the travel retail channel were partially offset by declines in developed international markets and the U.S., the company said.

Sales of Jack Daniel's Tennessee Apple grew 44%, while sales of Jack Daniel's Tennessee Whiskey fell 6%.

Two recently acquired brands, Gin Mare and Diplomático rum, drove the company's Rest of Portfolio's sales growth of 79%.

In the year to date, the ready-to-drink portfolio showed strength, as consumers continue to seek convenience, the company said. The New Mix segment saw sales grow 34%, while Jack Daniel's ready-do-drink portfolio was up 1%, driven by the launch of a Coca-Cola mix, which has proved popular in the U.K., U.S. and Poland.

Sales at the tequila portfolio were flat.

The company is now expecting fiscal 2024 organic net sales to be flat. Organic sales exclude the impact of foreign currency and acquisitions. It expects organic operating growth in the 0% to 2% range.

The stock has fallen 9.7% in the last 12 months, while the S&P 500 has gained 25%.

-Ciara Linnane

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03-06-24 1353ET

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